Yaay Equitable Financial Services!

There are a lot of wonderful things about the use of financial services as a tool to tackle poverty: it respects the dignity of the poor; generates a revenue stream for the lender; builds the borrower’s credit; and allows borrowers to make investments, such as in a security deposit or computer purchase, that they would otherwise be unable to make.  One challenge, however, is that there is an inherent tension between making loans to the poor and maintaining high repayment rates: the lower the income of the borrower, the riskier the loan.  This is not due to any character flaws on the part of the poor, but rather the instability–financial and otherwise–that often defines their lives.

Given that our poverty-fighting mission, it is imperative that we figure out how to make loans to deeply vulnerable populations without taking on an unacceptable level of risk.  Many of our referrals come from caseworkers and agencies that work with the temporarily homeless, the mentally ill, ex-offenders and survivors of domestic violence, and there it is very frustrating to deny a loan application that can transform the life of the applicant–a loan to cover the cost of a security deposit for a homeless family, for instance.

Ask any CEO of a nonprofit about the worst part of their job, and they will almost certainly speak to the never ending struggle to raise funds.  I come to that conclusion not only because it is how I respond to the question, but also thanks to nearly six years of interacting with my fellow nonprofit leaders. Grant reports, newsletters, proposals, lunch meetings and calls with potential donors are all critical elements of our job descriptions; yet they, on the face of it, have nothing to do with the mission. 

Almost all of us get into the nonprofit sector to serve others and solve problems.  What motivates us is knowing that our client’s lives are improved: we like to see the borrower, talk to the recipient of Financial Coaching, and read success stories.  Of course we all know that without money, none of this good work can be accomplished.  Still, as we spend hours staring at a computer or schmoozing, it can at times feel like you are more a glorified paper-pushed and beggar than agent of social change.

My Fortunate Experiences with a Healthy Lifestyle

I’m an athlete, and have been one my entire life. Growing up, I played all the usual sports: soccer, baseball, basketball, and then, more seriously, tennis. For each sport I had lessons, practices, and games to which my parents drove me. There were the costs of gas, equipment, and any number of other expenses. As I got into my teens I began to really focus on tennis, which meant gym memberships, a focus on healthy food, lessons, clothing, gear, and travel to and from matches. None of this came cheap; no matter how frugal you are, these costs are unavoidable, especially if you want to perform at your best.

Nowadays I am an avid cyclist. I bike to and from work, and go for training rides whenever possible. I take advantage of everything I can to stay motivated and make the most of my riding: I keep my bikes maintained, have the requisite gear for any weather, and even use a coach. As a result of all this and more, I am able to lead a healthy lifestyle.

As we’ve frequently discussed, we are increasingly focused on putting out of business the $100 billion / year predatory financial services industry.  Not only do these companies trap low-income, vulnerable families in a vicious cycle of debt, but at the macro level they are a serious drain on the economy; after all, every dollar spent on interest is a dollar not spent in the local, regional or national economy.  In short, predatory lending keeps the poor in poverty; it harms the economy; and it perpetuates the divide between the ‘haves’ and the have-nots.’

When it comes to putting the bad guys out of business, we face several challenges.  First, they are well-resourced and possess a powerful lobby.  Rhode Island is a case-in-point: despite bi-partisan support over the past 4 years, as well as a coalition of several dozen non-profit, religious and community groups, we have been unable to cap the interest rate payday lenders can charge at 36% (from the current 261%).  Second, legislation has its limits, and can often look like a game of “Whack-a-mole:” every time we rein in one predatory practice, another one pops up.  Third, a patchwork of state regulations make it hard to ensure that consumers across the country receive consistent, across-the-board protections from the worst offenders.

When I started Capital Good Fund in 2009, I was inspired by Dr. Muhammad Yunus’ model for using micro-business loans to tackle poverty.  The idea immediately struck a chord with me: by tapping into the entrepreneurial spirit of impoverished families, we could enable them to become self-sufficient.  With this in mind, we started off by offering loans of up to $3,000 for income-generating activities, such as home repair or catering.

It didn’t take long, however, for me to see that impoverished families had other, perhaps greater, needs. As we spoke with our low-income clients and conducted our own research, we realized that there is a $100 billion predatory financial services industry—payday lenders, check cashers, rent-to-own stores, auto title lenders and others—that takes advantage of the reluctance of mainstream firms to serve the low-income consumer. In addition, we discovered in our meetings with community partners that many immigrants couldn’t afford the $680 cost of applying for US Citizenship. As a result, they either deferred their dream or sought out predatory lenders to finance the process. 

I was just preparing for a presentation when I came across some interesting numbers vis-a-vis our growth over the past few years.  Specifically, I wanted to generate a report on how much we’ve raised each year, starting in 2011, as well as what percentage of that has been earned income (e.g., interest on loans and fees we charge for Coaching, as opposed to grants or donations).  Here are the numbers:

2011

– $167,000 in total income

– 6% of that was earned income

2012

– $306,000 in total income

– 13% of that was earned income

2013

– $393,000 in total income

– 13% of that was earned income

2014



– As of July 23rd, we had already raised $368,000

– Of that, 24% was earned income

– Since July 23rd, we have secured over $200,000 in new grants ($125,000 from the US Treasury, $75,000 from Rhode Island Foundation, and others), putting us on track to raise over $600,000 for the year

Our year-over-year growth, then, has been quite good.  From 2011 to 2012, for instance, we grew 83.2%; from 2012 to 2013 we grew 28%; and from 2013 to 2014 we will see growth of 65% (assuming total revenue of $650,000).  Equally importantly, the percentage of our funds coming from interest and fee-for-service income has increased by 18% since 2011.  We are especially proud of this because, in absolute terms, the dollar value of the earned income has gone from a measly $10K in 2011 to a projected $125K this year.

Still, in order to get to our five-year goals of scale, impact and significant earned income, our growth rate will have to remain strong.  In fact, our five-year plan calls for year-over-year growth of 47% next year and 26% by year five; this is compared to growth of about 7% for well-established companies.  And of course, the larger the budget, the harder it is to grow: going from $167K in revenue to $306K is a lot easier than going from $1.5 million to $3 million.

What do you think about these numbers?  What kind of growth are you seeing at your company?

Ellen Ford, CEO of People’s Credit Union

Yea, I’m Jealous. I Admit It!

I’m going to say it up front: I am jealous of the success of the Ice Bucket Challenge.  The reason should be obvious; for every hundred thousand nonprofits like Capital Good Fund–racking our brains just to raise that next dollar–there is but one wild viral success story.  You may recall the Kony 2012 video put out by Invisible Children, which raised tens of millions for the organization, and the Ice Bucket Challenge has already poured (pardon the pun) 50 million into the coffers of the ALS Association.  Unfortunately, these are outliers.  Aside from responses to natural disasters and attacks such as 9/11, the 2010 Haiti Quarthquake and Typhoon Haiyan (click the links to donate to these causes), nearly all nonprofit fundraising campaigns are limited in ambition and even more limited in their impact on the bottom line.

So why has the Challenge done so well?  If you’re a fan of Capital Good Fund, you probably remember our nonprofit IPO, which netted $25,000 for our operations thanks to over 150 individual contributors.  The concept got us a lot of positive press and exceeded our expectations in terms of engaging the public.  Particularly effective was the push to have ‘Shareholders’ post photos of themselves with their stock certificate on social media, something 27 donors did–everyone from the governor of Rhode Island to the CEO of Citizens Bank and individual supporters.  I got especially excited about these photos because I thought they could catch on; if there’s one lesson to learn from the Challenge, it’s that people like to share with others things of which they are proud.  But alas, a photo with a piece of paper isn’t nearly as exciting as a video of someone getting doused with water!

The Weather–And More

No one can predict the future, of course, but statistical analysis can make estimates with varying levels of accuracy about the future.  And we rely on these estimates all the time in our lives: the weather, risks associated with certain behaviors (smoking, eating fatty foods), the likelihood of a sporting team or political candidate winning, the ups and downs of the stock market.  Still, as we go about our days it can be easy to forget these probabilities; our most profound interaction with statistics, after all, is usually deciding whether or not to bring an umbrella to work.

In business, however–and especially in the social impact / financial services business–we are constantly making guesses about the future.  As a recent incident has highlighted, hiring an employee can be a crapshoot; when all is said and done, the interview process is all about reducing the risk of a bad hire to the lowest level possible. The challenge?  People are complicated.  They are hard to judge, and each person has different judgement.  One person may seem lackluster on paper and phenomenal in-person, only to turn out to be unreliable and irresponsible.  Another may receive a tepid letter of recommendation yet thrive in a particular role: maybe it’s the new environment, maybe it’s the tasks associated with the position, or maybe it’s something else.